Monthly Archive

How Can Science Help Joe Blow Think (and Forgive)? Try “Kayfabe”! and Take It to The Edge

By Shlomo Maital

Hulk Hogan, Pro Wrestler, kayfabe expert

Special thanks to intrepid NYT columnist David Brooks for spotting this. The website The Edge organizes on-line symposiums around key questions.* This year’s question was suggested by Princeton U. Professor Steven Pinker, a brilliant researcher of language and thinking. The question was this:

James Flynn has defined “shorthand abstractions” (or “SHA’s”) as concepts drawn from science that have become part of the language and make people smarter by providing widely applicable templates (“market”, “placebo”, “random sample,” “naturalistic fallacy,” are a few of his examples). His idea is that the abstraction is available as a single cognitive chunk which can be used as an element in thinking and debate.

WHAT SCIENTIFIC CONCEPT WOULD IMPROVE EVERYBODY’S COGNITIVE TOOLKIT?

A “scientific concept” may come from philosophy, logic, economics, jurisprudence, or other analytic enterprises, as long as it is a rigorous conceptual tool that may be summed up succinctly (or “in a phrase”) but has broad application to understanding the world.

In other words: What scientific finding could, if widely used, help ordinary human being Joe Blow think better, wiser, deeper?

There were 164 answers! Many are superb. You can click on all of them. I recommend those by Nobel Laureate Daniel Kahneman and behavioral economist Richard Thaler. But the best is that of mathematician Eric Weinstein, “kayfabe”, from Professional Wrestling, “an altered reality of layered falsehoods in which absolutely nothing can be assumed to be as it appears. Such a system is known to exist and now supports an intricate multi-billion dollar business empire of pure hokum.” Today journalism is largely ‘kayfabe’. So is much academic research. Once you know this, things become clearer, don’t they? (The name comes from “Kay Fabian”, a false name used in collect calls to signal safe arrival at a destination).

David Brooks, in his column, weighs in with one of his one. I like it a lot. It is called the ‘fundamental attribution error’. Its meaning? In our endless quest to find meaning in life, humans desperately find causal explanations for behavior that assume purposeful reasoning, even when the behavior is random or generated by circumstances as a one-time event. Put more simply: We attribute actions to people’s personalities, when the real cause is simply the circumstances surrounding them. For instance: In the seminal experiment, by Jones and Harris (1967), observers attributed pro-Castro bias to speakers, even when told the subjects’ positions were originally determined by a coin toss.

How can we use attribution error? Not everything we do is purposeful. We do things that we must, not that we truly want. Give people a break. Forgive. If that hoggy driver cut you off in the passing lane, maybe there was a reason other than his horrible evil personality. Cut humanity some slack. They usually deserve it. And maybe, just maybe, reverse the bias. Forgive people even more than they deserve, rather than less. This might just create world peace.

In his famous 17th C. sermon, John Donne warned, “never ask for whom the bell tolls; it tolls for thee.” On Friday March 11, a powerful 9.0 magnitude earthquake and ensuing tsunami struck northern Japan, wreaking destruction and death and threatening a catastrophic meltdown of five nuclear plants in Fukushima. The bell tolls out a message: A crisis in even the remotest parts of the world affects us all, and not just emotionally.

Henry Ford once said famously that Model T buyers could have any color they wanted, provided it was black. Today, Ford Motor Co. announces buyers can have any color they wish, provided it is NOT “Tuxedo Black”. Why? Pigment and paint factories in the northern prefectures of Japan have shut down, causing a global pigment panic and shortage of some key pigments.

Many car factories have told their buyers their orders will be delayed, or shipment of parts will be delayed, because of the northern Japan disaster.

A major culprit is the “just in time” philosophy of Japanese manufacturing. In normal times, the idea is great – instead of warehousing huge stockpiles of parts, at high cost, organize the supply chain so the parts are delivered ‘just in time’ – just as the hand of the assembler reaches out to grab them, and install them on the vehicle. But when the delicate ‘just in time’ system is disrupted, anywhere, the whole mechanism breaks down.

Supply chain managers all know that ‘second sourcing’ is vital (having more than one source for key parts). But not all of them practice it.

We are just now learning from Japan how loudly the bell tolls for all of us, everywhere, anywhere, when the bell tolls in any remote place in the world. And the message is not just one of how humanity must care for everyone, but that globalization has created a highly delicate, sensitive system that easily breaks down.

We can survive without Tuxedo Black Fords. But China’s imposed scarcity of rare earth products is another more serious example. In future, a breakdown of the complex delicate global ecosystem will wreak far greater damage.

There is a clear causal link between an on-line Harvard Business School Working Knowledge publication issued today, a New York Times column by James Carroll, a former Catholic priest, and the US-led ‘no fly’ operation in Libya.

HBS Profs. Gary Pisano and Willy Shih, in Working Knowledge, make the following arguments, that readers of my blog know well: “There’s still a manufacturing base in the United States, and it’s quite large even though it’s a small percentage of the economy. But if things continue the way they’re going, I’m more doubtful. Manufacturing capability takes a while to erode. But the damage is almost irreversible; that’s the concern. So now is the time to be doing something about it before we get to the point where the answer is no. …. exporting manufacturing ultimately drains away American innovation. That’s the heart of our argument. …For any individual company, it is often better, in the short or intermediate term, to outsource production to an overseas supplier. The company can buy manufacturing services at a much lower rate if it goes to China or elsewhere, depending on the industry. But if everybody is doing that, you get a general erosion of the economy, which could lead to a decline in the standard of living. One of the issues in developing a national economic strategy has been confusion with the term “industrial policy,” which has been anathema in Washington. “Industrial policy” involves some degree of central planning. What we’re talking about is a discussion about strategic capabilities that need to reside within the country. Unlike other nations, we don’t have a national economic strategy. There’s this big debate about whether we should have one. My answer is absolutely yes. If you look at the United States in the postwar period, there was a very strong national economic strategy around using science to drive economic growth. We created the National Science Foundation and the National Institutes of Health, among others, and the government invested dramatically in building a scientific and technical infrastructure needed to fuel growth. That was the national strategy, but it was not industrial policy. There’s an important need today for having a coordinated national strategy at the policy level.

James Carroll argues: America can slash its defense spending to ‘only’ twice that of its nearest competitor – and still be a military superpower. The savings in resources will be immense – the State Dept. budget is only $50 b., compared with a Pentagon defense budget of $1 trillion ! And the Tea Party Republicans want to slash…the State Dept. budget.

When France’s Sarkozy and Britain’s Campbell pressed for a ‘no fly’ zone operation over Libya, the actual military operation was dominated by American aircraft and cruise missiles and still is, because, for example, America has eleven aircraft carrier battle groups, while no other country has more than one (Britain has none, because it has decommissioned its carriers, a few days before the Libya operation). So, while foreign countries shape policy and use America’s military might to implement it, America pays the bills, which it can ill afford. Because today America desperately needs those ‘aircraft carrier’ investments to re-industrialize and bring home its manufacturing from Shenzhen to Schenectady.

Those are the hard facts. Thanks to Profs. Pisano and Shih for again reiterating them.

There is a surprisingly tight historical link between coffee, Facebook and revolution. And it is not because people drink coffee while fomenting revolutions on their laptops.

Coffee is over a thousand years old. It was allegedly discovered by an Ethiopian goatherd, who noticed his goats were especially lively after eating leaves and beans from a low shrub. He too tried it, the story goes – and the rest is history.

On Jan. 18, Asmaa Mahfouz, a 26-year-old Egyptian woman, made a video urging citizens to demand their “human rights”. The time and place of such demonstrations were coordinated on Facebook. Earlier the same was done in Tunisia, a brutal dictatorship defeated by the boundary-free nature of Internet. Facebook played equally important roles elsewhere, in Bahrain for instance, and continues to play this role in Syria and elsewhere.

But it is not widely known that the role of coordination and communication that Facebook filled in today’s Mideast evolutions was played 222 years ago, by …coffee. Though discovered in Ethiopia, coffee was actually brought to Europe from South America. Brazilian coffee, now a fourth of the world’s supply, originated with a few fertile stolen beans from Colombia. Coffee became hugely popular in the 18th C. in Europe as coffee houses spread. Europe sobered up – instead of drinking wine and beer in pubs, Europeans (including the British) began drinking coffee.

The French Revolution, culminating in the storming of the Bastille in July 1789, was planned and coordinated in meetings held in French coffee houses. At the time, coffee tasted awful! The beans were poorly roasted and boiled into a black sludge. But – caffeine is caffeine…. And the French Revolution was driven by caffeine and the conversations held as it was being drunk. Coffee houses and cafes were the Facebook of the French Revolution.

The same is true of the American Revolution, in 1776. The French middle class was inspired by the rebellious Americans, who had made tea the Tahrir Square issue. When the British tried to tax tea bought by Americans, they dumped it into Boston Harbor. The Tea Party was led by a brewer named Samuel Adams – you can still drink his beer. It then became patriotic to drink coffee. In fact, Americans identified their political leanings (British loyalist vs. American rebel) by the beverage they drank in coffee houses.

The final part to this Facebook coffee story, the missing link, is a man named James Folger, who left Boston and went to California in the 1849 gold rush. But he found gold not in ‘them thar hills’ but in coffee. He roasted coffee beans, then ground and packaged them, and brought them up to the miners and sold them for gold dust. Folger made more money than they did. And Folger’s remains a major coffee brand to this day.

The link? Facebook’s headquarters, like many such startups, are on Pagemill Road, in Palo Alto, California, where 26-year-old Mark Zuckerberg has struck gold, after drinking endless cups of coffee late into the night while writing code. So — coffee, Facebook, Revolution…the circle has closed.

No, the Global Crisis is NOT Over – and Europe and America Are Making It Much Worse, and May Yet Sink Our Boats!

By Shlomo Maital

How will historians record the 2007-11 era, 50 years from now? In a few short sentences:

European governments, led by Germany, pursued a wholly erroneous policy. They chose to bail out errant banks, by forcing draconian bailout terms on Greece, Ireland, and Portugal, impoverishing those nations so that the wealthy could be reimbursed for their disastrous and irresponsible mistakes. Europe chose deficit reduction over fiscal stimulus, thus prolonging the recession. America deepened the error, as Tea Party candidates pushed President Obama into deficit-reduction mode rather than economy-stimulating mode, further diminishing economic growth. Neither America nor Europe realized, at the time, that the only real way to reduce deficits was to stimulate economic growth, thus boosting tax revenues, by stimulating demand, and replacing weak private consumption and investment demand with public spending on infrastructure. It took many years of stumbling before America and Europe realized their utter stupidity. But by then, several years of unemployment and stagnation had inflicted enormous and needless suffering.

Writing in Carnegie Foundation Policy Brief 90, Feb. 2011, Uri Dadush describes “global rebalancing” as a “dangerous obsession”. His main point: “rebalancing” is not needed, because the current account deficits in the West can continue to be financed. The main agenda, says Dadush, should be sustainable growth. He notes: “In the United States, short-term growth will be slower in the absence of additional fiscal stimulus; without medium-term fiscal reforms, growth will become unbalanced again and the economy will be vulnerable to a sudden loss of market confidence”. In other words: Another crisis, perhaps sooner rather than later!

It is frustrating to watch Europe, in particular, led by staid Germany and Chancellor Merkel, struggling to reduce electoral losses in regional elections, make crises worse again and again, with only the name of the peripheral country changing, from Greece to Ireland to Portugal. Substantial debt write-off must occur, inflicting pain on the wealthy and the bankers who bear most responsibility in the first place. It is simply unacceptable to make the poor of Portugal bear the burden.

Ireland, Greece and Portugal have a doomsday weapon – leaving the euro bloc. They would lose, but Germany would lose as well. If I were they, I would threaten to use this weapon.

Take, for instance, “Messenger” (Mercury Surface, Space Environment, Geochemistry and Ranging) mission to the planet Mercury.It was first launched on Aug. 3, 2004, nearly seven years ago.To reach Messenger with a sufficient payload, the ‘slingshot’ effect of gravity was used – Messenger did a zip around Earth, a zip around Venus (2006), another zip around Venus (2007), three ‘flyby’s’ near Mercury, and now at last, on March 18, Messenger entered Mercury’s orbit.

So what?How will humanity benefit?

Mercury is a very weird planet.It’s the smallest and innermost planet of all and has the smallest axial tilt.We know very very little about Mercury. But Messenger will soon fix that, as it begins mapping the planet.Mercury is very very dense, partly because of its large iron core (similar to Earth’s).It is very hot and also very cold, with temperatures ranging from minus 183 C. to plus 427 C., depending on whether the region faces the sun or is at the bottom of dark craters.Its name comes from the Romans, who named it after the god Hermes, the speedy messenger god.Mercury has ice and a highly varied terrain, with plains and mountains and craters.And, Mercury has a magnetic field, like earth.The Mercury year is 88 Earth-days, but its slow spin gives it a single day (sunrise to sunrise) of twice that, or 176 Earth days!(Your working life on Mercury will thus be only about a couple of months).

MESSENGER was expensive; it cost NASA (and the US taxpayer) $446 m., nearly half a billion dollars. In these days of fierce budget cutting, it is doubtful whether the U.S. Congress would have approved the Messenger project.This is a shame.NASA cooks up great stories about what we might learn from Messenger.But the truth is, innovation and science are driven by curiosity, and sometimes, satisfying our curiosity is very expensive.A society without curiosity, and without the ability and willingness to fund that curiosity with time, effort and money,is without hope.

So –let’s raise a toast to curiosity, and to Messenger, and to the mysterious hot-cold Mercury.Let’s continue to explore wherever our curiosity drives us, because that is what makes us human, makes us creative – and makes life worth living.

All-American, but – Made In China: America is #2, First Time in 110 Years!

By Shlomo Maital

American Barbie, “Made in China”

Writing in The Financial Times (March 18), Gillian Tett notes that despite the lower dollar, slightly appreciating yuan, and deep understanding that America must repatriate its manufacturing from offshore sites, to create well-paying jobs – many things that are labeled “American” are in fact still Chinese-made.

At the American Girl store in Manhattan, the ‘all-American” dolls and clothes are Made in China. Including Barbies.

Apple is American; however, according to Tett, “components for the iPhone are variously assembled in China, Korea, Taipei, Germany and the US, involving almost a dozen companies which are hard to pigeonhole with any ethnic label”.

According to Tett, “the economics consultancy IHS Global Insight calculated that in 2010 China displaced America as the largest manufacturer in the world – the first time that the US has lost this top slot for 110 years”.

The head of the World Trade Organization, Pascal Lamy, has recently (according to Tett) said that economists should stop paying attention to “imports” and “exports”, because so many goods have imported components that “made in China” or “made in America” has no meaning any more. There is a simple solution. Measure “net export value added” (the value added to imported components for export goods). Trade statistics are not arbitrary; it DOES make a huge difference where things are made, whether in China or America, to workers who make a living in factories. And for buyers, it should also make a difference whether American Barbie dolls are made in Shanghai or in Peoria.

Here is the Beatles’ success story. They made a demo tape of “I Wanna Hold Your Hand”. They sent it to America’s Capitol Records. Capitol executives loved it, grabbed it, the album became a smash hit, the Beatles were invited to appear on Ed Sullivan (hit TV show)..and the rest is hysterical groupie history.

Very little of this is true. Here is how it really happened, according to a fine new book.* “Love Me Do” was a big hit in Britain for EMI, but the American affiliate of EMI, Capital Records, refused to issue it, or any of the album’s singles, including “Please Please Me”.

Were the Beatles upset, angry, hurt? Did their egos lead them to tell Capitol to …@#$^%&*?

No. They used the Saroyan Syndrome. Innovators should remember it. Young William Saroyan, a budding writer, sent a short story to Saturday Evening Post, then the leading market for such work. They rejected it. He then wrote them, “I will send you one new story every single day, until you accept one”. And it took a year, but they finally did. The rest is history – he became one of America’s best fiction writers.

The Beatles continued toinnovate, to record new material and sent it to Capitol – for one solid year. At long last, in 1964, Capitol released “I Wanna Hold Your Hand” which quickly became Beatles’ first #1 hit in the U.S. and made Capitol Records a serious fortune. Note that the Beatles did not continue to pitch the same material to Capitol. Instead, their producer, George Martin, sent something to Capitol “only when he had something new and improved”.

Stubborn persistence – which my research has found is a top quality of successful entrepreneurs, second only to (and very similar to) resilience.

It takes a lot more than raw talent to break through.

*Richard Courtney and George Cassidy, Come Together: The Business Wisdom of the Beatles. 2011. Reviewed in Global New York Times, March 21, p. 18.

If you are an innovator, is it better to be supremely confident, even arrogant? Or is it better to be humble, self-effacing, modest?

The answer is: Yes. There appears to be a bipolar aspect to the underlying psychological attitudes that drive innovation. This emerges from research on self-esteem, noted in David Brooks’ recent NYT column, and led by psychologist David Schmidt, of Bradley University, in Peoria, Illinois. This research measures national self-esteem: Confidence in our ability to think, to cope with the basic challenges of life and confidence in our right to be successful and happy. His team measured self-esteem in a large number of countries.

The top six are:

• Serbia: 33.59

• Chile: 33.12

• Israel: 33.03

• Peru: 33.01

• Estonia: 32.63

• United States: 32.21

Note that among these, Israel, Estonia and the U.S. are highly innovative nations, whose entrepreneurs are endowed with great self-confidence and willingness to undertake risk. One might assume that innovation and entrepreneurship correlates strongly and positively with self-esteem.

However, consider also the bottom-ranked nations, with Japan the lowest of all:

• Taiwan: 28.77

• Czech Republic: 28.47

• Bangladesh: 27.80

• Hong Kong: 27.54

• Japan: 25.50

Among these nations, Taiwan and Hong Kong are highly entrepreneurial and innovative. But Japan is not. Taiwan and Hong Kong appear to have entrepreneurial drive arising from ‘worst-case scenarios’ – bad things may happen, if they do you will have only yourself and your own wealth and savings to rely on. Japan’s self-effacing culture of modesty and understatement does not seem to boost innovation.

In general, I believe that innovation is highly dependent on national culture, but each nation that excels in innovation does so, in its own way, unique and distinctive. This is why nations that have tried to emulate other nations’ innovation ecosystems have generally failed. The message for nations that seek to become more innovate is: You can do it, either through supreme self-confidence, or utter lack of self-confidence and self-esteem – but you can do it.

Earlier, in this blog, I noted why we should all read economist Martin Wolf, Financial Times columnist, carefully and regularly. To that, I would like to add New York Times business columnist Floyd Norris, who writes “Off the Chart”. Unlike most of us journalists, Norris does his homework thoroughly. He crunches data most of us shun.

In his March 19-20 column, Norris documents the remarkable deleveraging (debt reduction) process now going on in America. He does this by digging through Federal Reserve “Flow of Funds” statements going back to 1990.

He finds that the debt of the financial services sector, which grew by 600 per cent between 1990 ($2.6 trillion) and 2008 ($16 trillion), has fallen sharply, to about $14.2 trillion in 2010. Household debt also soared from 1990-2008, but has fallen sharply as well, for two reasons: a) debt holders are writing off bad loans, and b) households are borrowing less and are paying off old loans. The only institution that is still ‘leveraging’ is the federal government, whose outstanding debt is now $9.4 trillion.

Here are the underlying figures: (Total outstanding debt at year end, $ trillion)

1990 2010

Fed. Govt. 2.5 9.4

Households 3.6 13.4

Nonfinancial bus. 3.8 11.1

Financial 2.6 14.2

State & Local Govt. 1.02.5

TOTAL: 13.5 50 .6

% of GDP 169 % 385 %

Deleveraging still has a long way to go. Total debt in America in 2010 is nearly four times GDP, compared with less than twice GDP in 1990.

Had we tracked the Fed Flow of Funds data carefully, and observed the ballooning amounts of debt (especially in financial services), we would have realized that systemic risk has ballooned as well, and that the system is headed for a crash.